Correlation Between Amazon and Palo Alto

Can any of the company-specific risk be diversified away by investing in both Amazon and Palo Alto at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Amazon and Palo Alto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Amazon Inc and Palo Alto Networks, you can compare the effects of market volatilities on Amazon and Palo Alto and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Amazon with a short position of Palo Alto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Palo Alto.

Diversification Opportunities for Amazon and Palo Alto

0.86

Correlation Coefficient

Amazon  Palo Alto

Very poor diversification

The 3 months correlation between Amazon and Palo is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Palo Alto Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palo Alto Networks and Amazon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Amazon Inc are associated (or correlated) with Palo Alto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palo Alto Networks has no effect on the direction of Amazon i.e., Amazon and Palo Alto go up and down completely randomly.

Pair Corralation between Amazon and Palo Alto

Assuming the 90 days trading horizon Amazon Inc is expected to generate 0.87 times more return on investment than Palo Alto. However, Amazon Inc is 1.15 times less risky than Palo Alto. It trades about 0.22 of its potential returns per unit of risk. Palo Alto Networks is currently generating about 0.14 per unit of risk. If you would invest  357,683  in Amazon Inc on September 17, 2024 and sell it today you would earn a total of  100,603  from holding Amazon Inc or generate 28.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Amazon Inc  vs.  Palo Alto Networks

Amazon Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Amazon showed solid returns over the last few months and may actually be approaching a breakup point.

Palo Alto Networks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Palo Alto Networks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Palo Alto showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Palo Alto

The main advantage of trading using opposite Amazon and Palo Alto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Palo Alto can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Palo Alto will offset losses from the drop in Palo Alto's long position.

The idea behind Amazon Inc and Palo Alto Networks pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Directory module to find actively traded commodities issued by global exchanges.